Financial Markets Flashcards
What is the primary function of financial markets?
To mobilize savings for investment by transferring surplus funds from savers to borrowers
Name the main types of financial markets
Money markets, Capital markets, primary markets, and secondary markets
What are some examples of money market instruments?
Treasury Bills, Commercial Paper, Certificates of deposit
What are the principal markets in the UK for capital financing?
London Stock Exchange and AIM (alternative Investment MArket)
What are the three forms of market efficiency?
Weak form, semi-strong form, strong form efficiency
What is the risk-return trade off?
Riskier investments require higher expected returns as compensation for risk
What roles do financial intermediaries play?
They link savers and borrowers, provide risk pooling, maturity transformation and diversification
What is the difference between primary and secondary markets?
Primary markets raise new finance, while secondary markets enable trading of existing securities
How does behavioural finance challenge the EMH?
It highlights irrational investor behaviour and psychological biases that affect markets
What are examples of external financing?
Equity, and debt
